N8330

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 1694 OF 2019

BETWEEN:
STEPHEN IAN ASIVO
Plaintiff

AND:
MAIGARI LIMITED
First Defendant

AND:
RAMU NICO MANAGEMENT (MCC) LIMITED
Second Defendant

Madang: Narokobi J
2020: 20th & 26th May

PRACTICE AND PROCEDURE – motion to remove party for being unnecessarily named – National Court Rules, Order 5, Rule 9(a).

CONTRACT – privity of contract – whether a contract can be enforced against a person who was not a party to the contract.

The plaintiff commenced proceedings against the defendants, claiming damages for breach of contract. The second defendant responded by moving a motion that it was unnecessarily named as a party, in that it was not a party to the contract which the plaintiff seeks to enforce against it by virtue of the doctrine of privity of contract.

Held:
(1) Where a person wishes to enforce a contract by claiming damages for breach of contract against another party, they must plead that the other party, was a party to the contract or plead one of the exceptions to the doctrine of privity of contract.

(2) The second defendant was not a party to the contract and the plaintiff did not plead any of the exceptions to the doctrine of privity to ensure their continuance as a party.

(3) The contract as pleaded in the statement of claim discloses no reasonable cause of action against the Second Defendant, and as a matter of discretion, it should be removed as a party.

Cases Cited:

Asivo v Bank of South Pacific Ltd (2009) N3754
Christian Life Centre v Associated Mission Churches of PNG & Others (2002) N2261
Maoko v Ling (2008) N3293
PNGBC v Barra Amevo and Bari Investments t/a Kainantu Pharmacy, Lennie Aparima and Orito Aparima (1998) N1726

NOTICE OF MOTION

This was a motion to remove a party for being unnecessarily named.

Counsel:

Ms. E. Valakvi, for the First Defendant
Mr. S. Asivo, in person

26th May, 2020

1.	NAROKOBI J:	The Second Defendant filed an application by way of Notice of Motion on 12 May 2020 seeking orders under Order 5 rule 9(a) of the National Court Rulesto remove itself as a party to the proceeding for being unnecessarily named in this proceeding on the basis that it is not a party to the contract entered between the Plaintiff and the First Defendant.

Background 

2.	The Plaintiff appears in person and defends the application.

3.	There was no appearance for the First Defendant.

4.	The case is essentially about breach of contract. The Plaintiff was engaged to provide accounting services to the defendants. He says that the services were rendered and he was not paid for his services. The writ of summons and the statement of claim filed on 17 December 2020 and subsequently amended and filed on 8 January 2020 seeks damages for breach of a written contract dated 1 March 2016 and anoral contract entered into on or about 1 September 2016. The plaintiff claims specific and general damages.

5.	The contract is styled as “Consulting Contract, Maigari Limited, Company and Stephen Ian Asivo, Consultant (hereafter referred to as Consulting Contract).

6.	Order 5 rule 9(a) of the National Court Rules is in the following terms:

9. Removal of parties (8/9)

Where a party-

(a)	Has been improperly or unnecessarily joined; or…
(b)	…
the Court, on application by any party or its own motion, may, on terms, order that he cease to be a party and make orders for the further conduct of the proceedings.

7.	The Second Defendant seeks to remove itself from the proceedings based on Order 5, rule 9(a) of the National Court Rules as it says that it is not a party to the Consulting Contract and by virtue of the doctrine of privity of contract, it can neither sue nor be sued on the contract, the subject of this proceedings.

Contention of the Parties – Second Defendant 

8.	The application is supported by the affidavit of Ethel Valakvi sworn and filed on 19 May 2020.

9.	In support of the application, the First Defendant states at paragraph 9 of Ms Valakvi’s affidavit that the Consulting Contract dated 1 March 2016 was  entered into between the Plaintiff and the First Defendant. The Second Defendant was not a party to this contract at all material times. She says that the First Defendant is a company incorporated under the Companies Act and is owned by the resource owners from the Maigari Inland Pipeline area and has a management of its own. The First Defendant was created under the Ramu Nickel MOA Business Development Policy to allow landowners participation in business activities derived from the Ramu Nickel project.

10.	At paragraph 10 of Ms Valakvi’s affidavit, she states that the former Business Development Officer of the Second Defendant, John Wowonam who was attached it its Community Affairs Department at the relevant time was also the Acting General Manager of the First Defendant. Mr Wowonam executed both agreements in his capacity as the Acting General Manager of the First Defendant, and this was done with the approval of the First Defendant’s Board of Directors.

11.	At paragraph 11, Ms Valakvi states that that any service agreement done in the name of the Second Defendant has to obtain management approval and endorsement before such agreement can be executed. In this case, the Second Defendant was not a party.

12.	She says further at paragraph 12 that any agreement approved by the Second Defendant is usually signed by the concerned Department’s General Manager. Mr John Wowonam only signed to witness the agreement and not to commit the Second Defendant.

Contention of the Parties – Plaintiff

13.	In response, Mr Asivo refers to his own affidavit filed on 11 February 2020, 14 May 2020 and that of Mr John Wowonam filed on 2 January 2020.

1.	In Mr Asivo’s affidavit of 11 February 2020 he outlines the circumstances in which he went through to be engaged to provide services to the First Defendant. He says at paragraph 5 that when Mr John Wowonam, the Second Defendant’s Business Development officer asked him to undertake the task, and Mr Asivo felt comfortable to undertake the task, as he was being asked by a reputable entity to provide the services. He says that Mr Wowonam told him that his responsibilities included overseeing the management of the First Defendant. 

2.	In Mr Asivo’s affidavit of 14 May 2020, he states at paragraph 15 that Clause 27 of the Revised Memorandum of Agreement Relating to the Ramu Nickel/Cobalt Project (MOA) between all relevant stakeholders clearly show that RamuNicko Management (MCC) Limited is responsible for spin off business, which included management of landowner companies. The Second Defendant should not shy away from its corporate responsibility which is spelt out in the MOA.

3.	Mr Wowonam essentially says in his affidavit of 2 January 2020 that he had engaged the services of Mr Asivo in his official capacity as the Business Development Officer of the Second Defendant and in that light, it should assume some responsibility.

4.	The Second Defendant’s contention is that by virtue of the doctrine of privity of contract, it is not a party to the agreement and could neither sue nor be sued on the contract. It relies on the case of Maoko v Ling [2008] PGNC 19;  N3293 to support its contention. In that case it was held that where a person wishes to enforce a contract by claiming damages for breach of contract, they must plead that they were a party to the contract or bring themselves within one of the exceptions to the doctrine of privity of contract. 

5.	The Plaintiff relies on the following case to rebut this contention Asivo v Bank of South Pacific Ltd [2009] PGNC 149;  N3754. This case looked at the issue of breach of contract for non-disclosure. The issue under consideration is whether the doctrine of privity of contract should apply in the present case

6.	The issues that arises are as follows:

•	Whether the doctrine of privity of contract applies to the present factual circumstances?;
•	If the doctrine applies, do the factual circumstances present any exceptions to the application of the doctrine of privity of contract?; and
•	If none of the exceptions apply, should the Second Defendant be removed as a party to the proceedings?

The Law – Doctrine of Privity of Contract and its Exceptions 

7.	The doctrine of privity of contract is part of the underlying law of Papua New Guinea (Maoko v Ling [2008] PGNC 19; N3293 (Cannings J, at paragraph 6).

8.	The doctrine is explained in the following way by Sevua J in PNGBC v Barra Amevo and Bari Investments t/a Kainantu Pharmacy, Lennie Aparima and Orito Aparima (1998) N1726:

“The doctrine of privity of contract is that, as a general rule, a contract cannot confer rights or impose obligations arising under it on any person except the parties to it. The scope of the doctrine means only that a person cannot acquire rights, or be subjected to liabilities, arising under a contract to which he is not a party.” 

9.	In Christian Life Centre v Associated Mission Churches of PNG & Others (2002) N2261 Lenalia J explained the doctrine in the following terms:

“In the law of contract, a contract creates rights and obligations only between the parties to it. A contract does not confer rights on a stranger nor does it impose any obligations on the same. It is a fundamental principle of common law, that no person can sue or be sued on a contract unless he or she is a party to it: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847. The doctrine of privity means a contract cannot as a general rule confer rights or impose obligations arising under it on any person except the parties to it.”

10.	There are however exceptions to the doctrine of privity of contract. Cannings J in Maoko v Ling made the following pertinent observations at paragraph 8:

“There are, however, a number of exceptions to the doctrine of privity which allow third parties to acquire rights or obligations under a contract. Sawong J explained this in Albert Areng v Gregory Babia & National Housing Corporation (2005) N2895. In that case the plaintiff was the son of the purchasers of a property who had entered into a contract of sale with the National Housing Corporation. There was a long delay in transferring the title to the property and the plaintiff sued the NHC and the manager of its Madang office, claiming damages for breach of contract. The defendants attempted to have the proceedings summarily dismissed on the ground that the plaintiff was not a party to the contract. However, their motion for dismissal was refused as the court accepted that the plaintiff was authorised by his parents to bring the case to court. The defendants’ reliance on the doctrine of privity was regarded by Sawong J as a belated attempt on their part to distance themselves from the performance of their contractual obligations. This was unacceptable and inequitable and his Honour concluded that the doctrine of privity did not apply.”

11.	Cannings J further states at paragraph 10:

“If a person wishes to enforce a contract by claiming damages for breach of contract, they must plead that they were a party to the contract or bring themselves within one of the well recognised exceptions to the doctrine of privity of contract.”

12.	With respect, I adopt this statement as relevant to the facts of this case, as the Second Defendant wishes to rely on the doctrine of privity of contract to remove itself as a party to the proceedings.

Applying the Law to the Facts

13.	I now turn to the facts and its implications on the law. In my view, the facts show that the contract as pleaded (which terms are not in dispute) was between the Plaintiff and the First Defendant. This is therefore a case for the operation of the doctrine of privity of contract. The following lend support to this finding.

14.	The starting point is the Consultancy Contract. The introduction states as follows:

“This AGREEMENT is made on the 1st day of March the year 2016, between Maigari Limited of Section 95, Lot 18, Modilon Road, Madang province (hereinafter called the Company) of the one part and Stephen Ian Asivo of Section 124, Allotment 35, Marahon Crescent, Newtown, Madang, hereinafter called the Employee of the other part”

15.	I note at Clause 2 of the Consultancy Contract, which says that the Company (First Defendant) shall engage the Consultant in the capacity as Special Business Adviser to the Board of Directors and the Inland Pipeline Landowners Association from the period 1st March 2016 until the 31st of August 2016 for a period of six (6) months.

16.	The Plaintiff’s responsibilities are set out in the Terms of Reference (TOR) referred to in clause 3 of the Contract. They include preparation of Maigari Limited’s (First Defendant’s) financial statements. The TOR also spell out how much the Plaintiff is to be paid, and it is signed by a representative of the First Defendant.

17.	At clause 5 of the contract, it requires the Plaintiff to report to the Board of Directors of the First Defendant.

18.	At clause 7, the First Defendant is required to pay the Plaintiff a 50% deposit equivalent to K18,000.00.

19.	Finally at the attestation clause the Plaintiff signed as “Consultant” and two directors of the First Defendant signed and affixed the company seal of the First Defendant. John Wowonam signs as “Witness” to the Consulting Contract.

20.	In John Wowonam’s affidavit at paragraph 14 he says that the Consulting Contract was orally extended from 1 September 2016 to 31 December 2017.  

21.	Turning now to the Statement of Claim. I consider the Amended Writ of Summons and Statement of Claim filed on 8 January 2020 as it how it pleads the cause of action against the Second Defendant.

22.	At paragraph 6 of the Statement of Claim it states that the Second Defendant is the company that established 4 landowner companies including the First Defendant, which “are stakeholders in this nickel and cobalt extraction.”

23.	 In paragraph 8 it states that Mr Wowonam facilitated a retainer agreement for a further 16 months from 1 September 2016 through to 31 December 2017, in his capacity as Business Development Officer of RamuNiCo Management (MCC) Limited.

24.	Paragraph 9 says that Mr John Wowonam had acted in his official capacity as the then Business Development Officer of the Second Defendant, and therefore the Second Defendant is “vicariously liable for the actions of its employee and the company it had created.”

25.	Finally the Statement of Claim allege  at paragraph 11 that “…defendant company and its Manager, RamuNiCo Management (MCC) Limited had breached a valid Consulting Contract and a properly executed Verbal Agreement…and hold that both defendants are liable…in Breach of Contract and therefore I am entitled to Damages.”

26.	In light of the forgoing I am drawn to the conclusion that when John Wowonam signed the Consultancy Contract, he only signed as a witness and was only facilitating the agreement as Business Development Officer of the Second Defendant. There is no clause in the agreement which suggests that there is an implied term for the Second Defendant to be a party to the contract.

27.	I cannot accept that the Second Defendant should be vicariously liable for the actions of Mr Wowonam as his scope of authority as the Business Development Officer was to facilitate the landowner entrepreneurial activities. He was also at the time, the Acting General Manager of the First Defendant.

28.	Mr Wowonam could not have committed the Second Defendant as its agent, as according to the evidence of Ms Valakvi, there was no approval for him to do so by the Second Defendant under its established process. His duty was to facilitate.

29.	I accept the evidence from Ms Valakvi that Mr Wowonam is also the Acting General Manager of the First Defendant, and that he facilitated the Consultancy Agreement in that capacity. I say this because there is no evidence that he was authorised in any way to financially commit the Second Defendant and that is evident in the terms of the Consultancy Contract.

30.	The facts also do not suggest that there is an exception to the application of the doctrine of privity of contract.

Conclusion

31.	In the case of Maoko v Ling, the court dismissed proceedings against the Defendant for disclosing no cause of action for the reason that the Defendant was not a party to the contract. In this case, the appropriate cause is to order the removal of the Second Defendant as party to the proceedings as it is not a party to the contract.

32.	In the exercise of my discretion, I will order that each party bears its own costs.

33.	The orders of the court are therefore as follows:

a)	Pursuant to Order 5 rule 9(a) of the National Court Rules, the Second Defendant is removed as a party to the proceeding for being unnecessarily named;
b)	Each party will bear its own costs of this application;
c)	Time for entry of the orders is abridged to the time of settlement by the Registrar which shall take place forthwith.

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In house Lawyers: Lawyers for the Second Defendant